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Inflation may cause interest rates rise
April 20, 2012
By Caroline Johnson

The Bank of England may increase interest rates sooner than expected due to inflation. A poll by Reuters found that a growing number of economists are rethinking the opinion that the record low base rate will remain unchanged for the next few years.

A hike in interest rates could hit millions of homeowners with increased mortgage repayments, as lenders’ standard variable rate (SVR) would increase accordingly. Those with a tracker mortgage would also be affected. While fixed rate mortgage holders would be temporarily immune, they would also be impacted when the loan reverts to the lender’s SVR at the end of the fixed term.

Base rate is still largely expected to stay at 0.5 per cent until the end of 2013, but more experts believe the Bank may raise interest rates before then, depending on growth. While around 40 per cent of economists polled two weeks ago forecast a base rate hike by the end of next year, the number has edged towards 50 per cent in Reuters’ latest survey. The rising cost of food, clothing and leisure drove inflation to 3.5 per cent, higher than the Bank’s projected three per cent and almost double its two per cent target.